The tremendous growth in Islamic banking has encouraged banks globally to move into this area that has become more popular among consumers.

Islamic banking is significantly different from conventional banking, as the latter operates on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. This implies that interest is a significant tool in conventional banks’ operations. As such, a conventional bank will need to forgo charging interest on financial capital, among others, as it gradually makes the change into an Islamic bank.

The process of transforming a conventional bank into a fully fledged Islamic bank can be achieved by complying with Islamic Shariah provisions. Such a bank will also benefit from working together with a group of partners such as an Islamic banking technology provider like International Turnkey Systems (ITS Group). ITS has contributed to the transformation of two Kuwaiti banks, as well as another bank in Egypt, into Islamic banks through its award-winning solution ETHIX.

ITS is an Islamic global award winning solution based on the innovation of an Islamic product definition engine that enables financial institutions like Ahli United Bank (formally BKME) to structure or engineer and launch new Islamic products in a timely  manner.

ITS ETHIX solution assists banks in the conversion process through the use of technology and helps to start the migration process of the bank’s operations within different departments. ETHIX for Islamic financial institutions covers the total banking solutions like Islamic finance, Islamic investment, core banking, branch information and trade finance.

“ITS is a strategic partner to the major Islamic banks worldwide. We provide consultancy services to banks where we share common Islamic banking practices. We help train banking staff and conduct a re-orientation process to familiarize them with Islamic products,” adds Ismail.

By implementing ITS ETHIX solution and by working closely with the bank’s employees, ITS assists in making a smooth transition from a conventional bank’s IT systems to that of an Islamic bank.
The company has garnered vast experience in Islamic banking practices and migrating current conventional banking products into corresponding Islamic structured products. The bank’s consultants, together with ITS, will work together to structure and implement the Islamic products and services; set needed processes and policies to follow; fulfill the needs of the bank and its customers; and complete the transformation process within the timeframe set out by the central bank.

Islamic banking brings many benefits to society. In contrast to conventional banks, the financing aspects of Islamic banking are strictly limited to construction goods and services.
Says Ismail Ali, marketing manager for financial industry, at ITS: “There are a few reasons why a conventional bank wants to become an Islamic entity, or to provide Islamic products through their windows. Firstly, it will add value to the bank and the market by creating a safer investment environment which will directly assist in reducing risk.

“Secondly, from an investment perspective, the Islamic investment and banking sector has recorded high growth ratios, so banking trends are directed towards Islamic banking. Islamic banks are getting strong support and demand from their local markets along with growth in the Islamic institutions and Islamic-based investment funds that are supported by Islamic financial institutions.”

“ITS does the training through our own academy where we train the bank staff. Our staff are spread across ITS’ 25 branches around the world.  We have a development and global support centre in Egypt and several regional offices in the Middle East, Africa and Asia and partners worldwide.
ITS is known for its expertise in the conversion of financial institutions in the Middle East, due to its awareness of the Middle Eastern central banks’ requirements, and knowledge of the regulations and instructions, specifically Islamic banks. Furthermore, ITS’ innovative solutions make it distinct from its competitors,” adds Ismail.

He points out that it is critical to communicate the bank’s new mission and identity to the staff. It is crucial that the bank educates its customers on the changes in banking processes so that they are compliant with Shariah law. The customers will need to understand the changes in areas such as returns on investment deposits and the provision of interest-free deposits.
In addition, a bank that is making this transformation will need to form a Shariah board that includes a group of prominent Shariah scholars. This Shariah board assumes a key role in supporting the bank’s operation to meet the Shariah requirements according to ITS.

“The new Islamic banking products and services will need to gain approval by Shariah scholars. During the transformation stage, the Shariah board’s role is crucial because the entire scope of banking has to be approved,” explains Ismail.
Meanwhile, in marketing their new banking products, banks can develop their own innovative approach by hiring specialized Islamic banking marketers. Others may opt to train their own in-house marketing and sales people.
 
As with conventional banks, Islamic banks also consider the credit worthiness of the person acquiring the loan. However, conventional banks have a tendency to focus more on the profitability of the transaction. The principle of justice governs all Islamic banks and under this principle, the actual output which refers to profit or loss of a project must be shared equally between the financier and the beneficiary.
 
Islamic banks do not finance morally unacceptable goods and services such as alcoholic beverages, tobacco, casinos and pornography. This helps to reduce the social and economic cost of such products and activities in society.
Ultimately, conventional banks stand to benefit from making these changes and may ultimately find that Islamic banking eliminates the barrier between those who save and those who invest, and brings them closer to the real market.